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Supremes Pass on ERISA Burden of Proof Case


The nation’s highest court has decided not to weigh in on a case with significant implications for establishing the burden of proof in ERISA cases.

The petitioners seeking review in this case are Putnam Investments, LLC, and they had asked for a Supreme Court review of the case to resolve two issues: (1) which party bears the burden of proof on the issue of causation once a plaintiff has established a breach of fiduciary duty under ERISA and related plan losses; and (2) whether passively managed index funds can be appropriate benchmarks for establishing losses from the improper monitoring of actively managed funds.

‘Shift’ Rift?

The latter issue arose when, acknowledging that the First Circuit was shifting the burden in its decision in the Brotherston case, Judge William J. Kayatta, Jr. shrugged off arguments that the shift in burden of proof would undermine plan formation and encourage litigation by claiming that “…any fiduciary of a plan such as the Plan in this case can easily insulate itself by selecting well-established, low-fee and diversified market index funds.” This stance raised concerns of many – including the American Retirement Association, which, in a "friend of the court" filing in support of the motion to review the case, explained, “…by allowing plaintiffs to plead loss as a matter of law by comparing actively managed to passively managed funds, it will inevitably lead fiduciaries to prefer passive investment vehicles, reducing plan participants’ choices and potentially generating smaller returns.”

As for the burden of proof issue, Putnam had argued that the former issue seems to be split among the circuits – with four circuits (the First, Fourth, Fifth and Eighth Circuits) having ruled that an ERISA defendant bears the burden of proof on loss causation, while the Second, Sixth, Seventh, Ninth, Tenth, and Eleventh Circuits have left that burden on those bringing suit. 

‘Split’ Decisions?

The Supreme Court had asked the Solicitor General of the United States to weigh in with their opinion, and in late November they did, opining in a 28-page “friend of the court” brief that the case didn’t require review, both because the issue in this particular case hadn’t been fully litigated, and because the feds didn’t see the conflict in perspectives on the issue between the various district courts as an issue, claiming that “the Sixth, Seventh, Ninth, and Eleventh Circuits have not squarely addressed the burden-shifting issue, although they have indicated in general terms that a plaintiff bears the burden of establishing an ERISA claim.” 

Not surprisingly, Putnam rebutted that argument, claiming that, as a frequent party to this kind of litigation, the Solicitor General had a bias (in favor of the burden being placed on the defendants), but that was apparently insufficient to persuade the Supreme Court to take on the case – and the issue (Putnam Investments LLC et al. v. John Brotherston et al., case number 18-926, before the Supreme Court of the United States).

What This Means

This puts the case back at something of a restart. Putnam Investments, LLC, had prevailed in the district court, but had seen that “win” rebuffed by the appellate court, which directed the case to be reconsidered by the lower court through the prism of the acknowledged “shift” in the burden of proof cited above. Putnam had jumped “over” that process – requesting a stay in the proceedings while it sought that review by the Supreme Court. 

That now being denied, the case would appear to be headed back to the district court for reconsideration, albeit with Putnam now carrying the burden of proof that their actions were not imprudent and did not result in the alleged losses. In 2017, the same court concluded that the plaintiffs failed to identify any specific circumstances in which the company and its 401(k) plan put their own interests ahead of the interests of plan participants, and that the plaintiffs failed to show how Putnam’s allegedly imprudent actions resulted in losses that required compensation.

Stay tuned.